We thought it would be useful to mention the following few interesting aspects to the taxation of Trusts.

  1. Interest free loans to Trusts and Companies owned by Trusts from connected persons in excess of R 1,333,333 can carry certain donations tax implications. When introducing funds into Trusts this needs to be considered.
  2. Capital gains made by Trusts cannot be distributed to non-resident taxpayers – they are taxed in the trust at the Trust capital gains tax rate of 36% before distributions.
  3. Interest can be distributed to non-residents and be taxed in their hands without being taxed in the Trust.
  4. A capital gain cannot be distributed from Trust A to Trust B and then to an individual beneficiary to take advantage of the lower capital gains tax rate. It will be taxed in Trust B before distribution.
  5. In general distributions from foreign Trusts to SA tax residents are taxed in SA on that portion of the distribution that is made up of accumulated foreign interest, foreign dividends, foreign rental and foreign capital gains. The practicality of determining this is not always easy.
  6. Loans from SA to foreign Trusts need to bear interest to avoid being affected by transfer pricing legislation.

Trust tax legislation is becoming increasingly complicated and clients are advised to seek advice regarding the tax implications of trust transactions before they are completed.